* You ever see one of
those zombie movies where the guy shoots the monster like 15 times, and it just
keeps attacking? Well, the bears have been shooting zombie buyers for a
week now, and they keep coming back. Any basis for continuing to shoot is
hanging by a thread.

* We looked at the
market's momentum several times during March, and it continues to impress.
The two-month string of up days recently reached epic proportions, and history
suggests that it will not stop anytime soon (on an intermediate-term basis).

Why:
Yesterday I noted that the three other times that the S&P
500 had gapped down at least -0.5% since February, it
recovered to close at least 1% higher than the open.
It did so yet again yesterday. I was looking to see if
we could set a lower intraday low after the first hour of
trading, as that would give a good indication that we were
seeing a change in character. That did not happen.
Given everything we've gone over during the past two weeks,
that was the single best opportunity for the bears to change
the tone of the market. The fact that there was not
enough selling interest to do so speaks volumes, and it has
greatly diminished my already-low desire to try to bet
against this market if it manages to trade to new highs.
That view is reinforced with the study we discuss below
about the market's momentum. We'll just have to likely
chalk down the recent movements to an abject failure for the
recent spike in extremes to mark an exhaustion point, which
is a very rare occurrence and should be respected. The
market can do anything (obviously), so perhaps we'll get one
of those famous "fakeout breakouts", or even reverse hard
from here. But given the recent price action and
inability to stop the constant bid underneath even the
smallest declines, there is little evidence to suggest that
a decline now is more likely than it was the past few days.

Why: In early January, the Dumb Money
Confidence hit 75%, which was another successful "protect
your gains" warning sign. By early February, we went
over several studies suggesting we were very close to a good
multi-week buy signal, but they just missed triggering.
In the process, there have been some more encouraging signs
(such as no
overwhelming number of signs that we have seen a major
market peak, the
advance/decline line at a new all-time high and
extreme momentum in small-cap stocks). The spread
between the Smart Money and Dumb Money has moved beyond
-40%, the largest negative spread since early 2007, so there
are some definite intermediate-term warning signs.
We've been waiting since then for either a surge in
speculative activity, or waning momentum. We got the
former, with a surge to 75% in the Dumb Money. But the
price momentum
has been historic, which usually means even higher
prices during the months ahead, and we have not seen any
evidence of it waning yet, so it still appears way too early
to bet against this recovery on a multi-week or multi-month
time frame.

A major hallmark of the rally off the February low has been the sheer
number of examples of historic momentum we've seen. Perhaps none
are more impressive than the simple number of positive days.

Over the past two months (42 trading days), the S&P 500 recently enjoyed
a remarkable 31 closes higher than the previous day's. That's not
a common feat - in fact, we've seen it only once before in the past 15
years.

To see just how rare it is, and what it may portend, let's go all the
way back to 1928 and look for any other time the S&P enjoyed at least 31
winning days out of the past 42 sessions.

What we'll look at is how long it took, and what kind of rally it
mustered, before the index formed at least a two-month peak and suffered
at least a 5% correction:

Date

Days Until

5%
Correction

Max
Gain Until

5%
Correction

07/12/29

47

12%

02/01/43

135

20%

07/05/55

110

11%

07/28/58

256

29%

01/30/61

53

11%

09/24/65

95

4%

11/25/68

3

2%

12/28/70

84

15%

06/18/80

113

21%

03/22/95

298

37%

11/21/06

163

11%

Median

110

12%

It's probably not a big surprise that this kind of momentum often
indicated that the rally had a long time yet to go. There was only
one precedent, in 1968, when the S&P topped out soon after the momentum
reached the current level.

In every other case, the index took at least another two months before
it formed a top. And in all other cases but one, it rallied more
than 10% to get there. The exception was in 1965 when it took an
amazing 95 days to rally a measly 4% at the most before rolling over.

This does not mean that the S&P didn't suffer short-term scares along
the way - it certainly did. But the declines were either too
short, and the index climbed to another high quickly after, or they were
too modest (less than -5%) to count in the study. Even some of the
sentiment-based studies we looked at recently confirmed this kind of
market behavior.

Let's flip the data around and look for the opposite condition, times
when the S&P managed only 11 up days out of the past 42:

Date

Days Until

5%
Rally

Max
Loss Until

5%
Rally

04/20/32

35

-27%

11/13/41

37

-9%

05/23/62

23

-14%

04/30/70

18

-15%

07/06/82

27

-5%

Median

27

-14%

The downward momentum once again was not a signal that the S&P was about
to reverse immediately, but the time to get to a turning point was
significantly shorter than for the first table.

Every one of the instances formed a bottom within two months, though the
drawdowns to get there were hefty, especially in '32.

This data confirms something we already know and have discussed many
times on the site - upside momentum is very difficult to kill, and while
it can precede choppy conditions for extended periods, it rarely results
in imminent, substantial intermediate-term corrections.

On the flip side, when investors panic they tend to do so en masse, and
we get very swift, painful declines. The positive side of that is
that the damage gets done fairly quickly, and when we see such
persistent downside momentum, it usually pays to at least start looking
for reversal signals to trade the rebound.

The relentless
uptrend since the February bottom met with a couple of spikes in our
bearish (for the market) indicators, and except for a small hiccup here
and there, stocks didn't pay much mind.

On Wednesday,
however, we got a huge surge in the number of bearish indicators, to
nearly 50% of the ones we follow. That is tied with the most ever
in the past five years. We do not take that as a good short-term
sign for the market.

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